Playing Oil: Don't Forget the Drillers

Oil prices have been on the rise and that's good news for the big oil giants. It's also good news for oil-services companies, those who supply platforms and other machinery needed to get crude out from the ground and into the refineries.

Stock prices serve as evidence, especially for Schlumberger (SLB), the world's largest oil-field-services company. The company's shares are trading around $90, very close to the high end of its 52-week range of $51.67 to $95.64.

An improving economy is helping earnings. "The major demand forecasts released during 2010 have continued to increase as a result of the improving economic outlook, particularly in the developing economies," Schlumberger says in its 2010 annual report.

Unrest in the Middle East could affect company earnings, however, analysts say. "Our positive view is slightly tempered by the company’s announcement last month that political instability in Egypt, Tunisia and Libya has hit hard its revenues for the March quarter," reports Zacks Investment Research.

U.S. oil-services giant Halliburton (HAL), meanwhile, is heavily dependent on North American markets, where activity levels are tied to the volatile natural-gas drilling cycle.

The company is looking abroad to hedge its business. "The geographic breadth of its international operations helps offset downturns in North America, as has happened when drilling and production activities declined in 2009," Moody's Investors Service writes in a recent opinion.

The company recently announced that oil giant ExxonMobil has awarded it a contract to provide drilling services for 15 wells in the West Qurna oil field in southern Iraq.

"This contract award is a testament to the ongoing success of our Eastern Hemisphere growth strategy and is in addition to work awarded in this field by this customer in 2010," says Joe Rainey, president of Halliburton's Eastern Hemisphere operations, in a statement.

Diamond Offshore Drilling (DO), a Texas-based offshore drilling contractor, has healthy cash flows and low debt levels, according to Moody's. Moody's however, points out the company's fleet is somewhat reliant on midwater operations.

"Nineteen of Diamond's 46 rigs are second- and third-generation semisubmersible rigs that operate in midwater depths, a much higher proportion of Diamond's overall fleet than other rated offshore-drilling peers," Moody’s explained.